Ames to close all remaining stores, liquidate assets

By Paul Deckelman

New York, Aug. 14 - Ames Department Stores Inc. - in Chapter 11 reorganization proceedings for the past year - said on Wednesday that it will close its remaining stores and liquidate its assets in order to preserve maximum value for its creditors.

The Rocky Hill, Conn.-based discount retailer said it will keep its 327 stores in the Northeast, Mid-Atlantic and Midwest open for about another 10 weeks as it liquidates inventory via "going out of business" sales at all locations.

Ames said in a statement that the decision to close down all of its stores and have the company go out of business - with the expected loss of approximately 21,500 jobs - was "a wrenching decision, but the right course to take" in order to maximize the value of its remaining assets for the benefit of its creditors.

Among those creditors are the holders of Ames' 10% senior notes due 2006 and of the 12.5% senior notes due 2003 originally issued by the Hills Stores Co., which was subsequently bought by Ames in 1998.

In its most recent 10-Q filing with the Securities and Exchange Commission on June 18, covering the quarter ended on May 4, the company said that $200 million of the Ames 10% notes were outstanding at the time of its bankruptcy filing, and $44.1 million of the Hills 12.5% notes. It said that the two series of bonds were classified as "liabilities subject to settlement under the reorganization case," meaning that no principal or interest would be paid on the bonds without Bankruptcy Court approval or until a reorganization plan defining the repayment terms has been approved by the Bankruptcy Court.

Ames, which was founded in 1958 and which acquired the 392-store Zayre Stores chain in 1988, had its first brush with bankruptcy in 1990, but was able to emerge from Chapter 11 in 1992. It did well enough to be able to acquire Hills' 155 stores in 1998.

But hurt by competition from larger discounters including Wal-Mart Stores Inc., Target Corp. and Kmart Corp. - which itself was forced into bankruptcy earlier this year - Ames sought protection from its junk bond holders and other creditors via a Chapter 11 filing with the U.S. Bankruptcy Court for the Southern District of New York on Aug. 20, 2001, listing $1.9 billion in assets and $1.55 billion in debt.

Ames lined up a $700 million debtor-in-possession credit facility from General Electric Capital Corporation, from which $388 million had been borrowed by the end of the quarter ended May 4, as well as a $55 million DIP credit facility with Kimco Funding LLC. No figures were immediately available on outstanding borrowings, if any under the Kimco facility.

Although the original game plan was for Ames to continue operations while it reorganized, kept afloat during the time by the funds from its two DIP facilities, the retailing industry's troubles, aggravated by the overall economy's continued weakness, caused Ames executives to reassess their plans.

"Continued softness in sales, combined with tightening terms and slower shipments from our suppliers, have reduced our funds availability below critical levels," said Ames chairman and CEO Joseph R. Ettore in the company's statement announcing the plans to liquidate.

"To ensure the greatest possible value for our various stakeholders - including our associates [i.e., employees] - Ames management has resolved to pursue an orderly liquidation of the company now, rather than continue along a path that would further diminish our resources and lead Ames to default on its lending agreements," Ettore concluded.

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